Maximizing Profits in Market Structures
Maximizing Profits in Market Structures
Maximizing Profits in Market Structures Market Structures are described as a particular relationship between the buyers and the sellers of goods and services in a specific market (Mathias, 2000). Three different types of market structures are competitive markets, monopolies, and oligopolies. Each of these market structures has a particular set of characteristics that identify it and separate it from the others. These categories are also separated by the way they each use pricing and output to calculate and maximize their profits. Another difference between these three categories is the presence of barriers, which may be present to encourage current companies to exit, as well as new comers to enter that market. Also, each of these three structures has a different effect on the economy, some having more control on the market than others. With all these differences the specific market structures all have one thing in common, they all rely on supply and demand to determine how to maximize their profits. Competitive markets have two primary characteristics that separate it from other market structures. The first characteristic is that, within a competitive market, there are a large number of buyers and sellers. Second is that the product being sold is the same among all companies, making the products completely interchangeable. These factors make the market competitive by insuring that no single buyer or seller can control the market price. Therefore, in order for companies within a competitive market to maximize profits, they must maintain an equilibrium between the price charged for a product and quantity that they produce. This means that a company must take the price being charged for a product and subtract the cost of making the product to figure out where they are equal. As the price of a product in a competitive market is controlled by the market as a whole, the seller must adjust its output to maintain
Maximizing Profits in Market Structures Market Structures are described as a particular relationship between the buyers and the sellers of goods and services in a specific market (Mathias, 2000). Three different types of market structures are competitive markets, monopolies, and oligopolies. Each of these market structures has a particular set of characteristics that identify it and separate it from the others. These categories are also separated by the way they each use pricing and output to calculate and maximize their profits. Another difference between these three categories is the presence of barriers, which may be present to encourage current companies to exit, as well as new comers to enter that market. Also, each of these three structures has a different effect on the economy, some having more control on the market than others. With all these differences the specific market structures all have one thing in common, they all rely on supply and demand to determine how to maximize their profits. Competitive markets have two primary characteristics that separate it from other market structures. The first characteristic is that, within a competitive market, there are a large number of buyers and sellers. Second is that the product being sold is the same among all companies, making the products completely interchangeable. These factors make the market competitive by insuring that no single buyer or seller can control the market price. Therefore, in order for companies within a competitive market to maximize profits, they must maintain an equilibrium between the price charged for a product and quantity that they produce. This means that a company must take the price being charged for a product and subtract the cost of making the product to figure out where they are equal. As the price of a product in a competitive market is controlled by the market as a whole, the seller must adjust its output to maintain
References: Mankiw, N. G. (2007). Principles of economics (4th ed.). Mason, OH: South-Western Cengage Learning. Mathias. (2000). Market Structures or Models of Market Structures. Del Oro Social Science Department. Retrieved from http://www.doge.us/govecon/MarketStructures.pdf